As a founder of a start-up, there are countless things you worry about, and attending to corporate formalities is probably the last thing on your to-do list. However, imagine you have just been approached by a potential investor. Inevitably, the first item they will ask to see is your company’s capitalization table. Can you produce it or will it take you weeks to get it in order after scrambling through file cabinets to document every equity issuance you have made since the company’s inception and contacting each of your equity holders to confirm their equity holdings?

Having an accurate and complete capitalization table within reach will instill confidence in your investors and impress upon them that you are organized and in charge of your business. On the flip side, an incomplete capitalization table can signal issues to investors, layering an additional risk factor to a potential investment decision, even if no real issues exist. For these reasons, it is essential to put in the effort early on to create and maintain a reliable and accurate capitalization table.

A company’s capitalization table should lay out the equity and debt ownership of the various investors in your company. Most startups do not attract traditional debt lenders, and if this is true for your company, you will only need to document equity ownership, which may take many forms, from common equity to preferred equity to convertible debt. Specifically, your capitalization table should set forth to whom you have issued equity, at what price and in what quantities, whether those shares or units have particular voting rights, liquidity priority and other relevant information. Over time, as your company grows, your capitalization table will be your primary point of reference for handling employee equity, incentive plans, options or warrants and monitoring compliance with the securities laws and regulations. In addition, with a clean capitalization table at your fingertips, you will be able to quickly address a variety of questions that will be raised by a potential investor in any due diligence process, including who controls certain voting decisions.

A potential investor will give a great deal of attention to your capitalization table to ensure that it is not only complete, but that it is also in line with the type of capitalization structure they would like to be a part of. How will the new investor be ranked in the liquidity priority? Most investors want to be paid back before others. How many equity holders does the company have? Most investors want the company to have a small number of equity holders to ease the challenges of communication and voting. Are the employees adequately incentivized to stay with the business? Most investors want some assurance that the key employees will stay with the company long term. These are just a few issues a potential investor may consider when making their investment decision.

In a nutshell, a relatively small investment of time and effort up front to create and maintain a clean capitalization table and to consider your company’s capitalization structure could have a big impact on your attractiveness to potential investors down the road, making a difference between a done deal and no deal.